The Co-op Food Stores

added 02/06/08

by Don Kreis, Board President

Do you remember the first time you ever became convinced that civilization was in the toilet swirl? For me it was somewhere in the mid-1980s, the day I walked into a supermarket in my former hometown of Portland, Maine, and noticed the store was accepting credit cards for grocery purchases.

This mindset was the product of a quainter era, when people tended to use credit cards for major purchases and the acquisition of a credit card was one of life’s milestones, proof that the holder had demonstrated a level of responsibility that meant little risk to the issuing bank. Today, credit cards are so ubiquitous that essentially every retailer must accept this form of payment because shoppers expect it—and, of course, the Hanover Consumer Cooperative Society is no exception.

It is a reality with moral implications. Consider these facts, contained in an August 2007 report from the nonpartisan public policy think tank, Demos: Americans receive approximately 8 billion credit card offers a year. They owe $800 billion in credit card debt. Interest rates range from 0 to 41 percent. The credit card industry is making $30 billion a year in profits.

Those profits, it turns out, come from those who can least afford to generate them. According to Demos, among people who maintain a monthly balance on their credit card accounts, and thus pay interest to the bank, cardholders with household incomes below $25,000 a year are twice as likely as households earning $50,000, and more than five times more likely than households earning $100,000, to pay interest rates in excess of 20 percent.

The Demos report also sheds light on late-payment policies, which are a major source of credit card profits. Many credit card issuers have arbitrary payment policies, such as deeming a payment late if it arrives in the early afternoon (but before the end of the business day). The industry average late fee is $28. Late payments also trigger automatic interest rate increases, with such “penalty” rates averaging 24 percent, applied retroactively to all outstanding balances. And thanks to an industry practice known as “universal default,” credit card companies have taken to invoking such penalty rates even when a payment is missed to a different creditor altogether. Why should your credit card company care when you miss a payment to National Grid or Verizon?

Meanwhile, the Co-op now pays well over $500,000 a year to the credit card industry just to process payments from its four retail locations. These realities weigh heavily upon your Board of Directors. But, so far, we have taken no action.

One impediment we confront is a contractual prohibition on informing shoppers, at the checkout, of how much it costs the Co-op every time a credit card is used for payment. But even if we could provide this information at what is known in grocery parlance as the “front end” of the store, it would be somewhat misleading. Every form of payment—cash, checks, debit cards, food stamps, Co-op charge accounts—imposes a processing cost on the Co-op.

There are also the philosophical and financial implications of discouraging credit card use in an economy where consumers simply expect them to be accepted everywhere. Our cooperative has a long history of giving consumers what they want, taking care to withhold judgment. As to finances, the general manager of a food co-op on the west coast recently made these observations: “Our figures tell us that our customers who use plastic spend nearly six times as much per transaction as do our customers who use cash or check, and that those who use credit cards purchase about 15 percent more per transaction than those who use debit cards. So when it comes to trying to assess the costs/benefits of plastic … I tend to follow the old saying ‘Keep your eye on the donut and not on the hole.’ ”

My personal opinion, not necessarily that of your board, is that we need to confront this issue at the national level, by causing organizations like the National Cooperative Business Association and the National Cooperative Grocers’ Association to lobby Congress about the excesses of the credit card industry. We also need to forge a partnership with cooperative financial institutions—i.e., credit unions— to offer cooperative credit cards that treat consumers fairly.

What do you think? Check out the Demos research on the credit card industry at www.demos.org. Then send me an email with your ideas. That supermarket in Portland was indifferent to the moral implications of credit cards, but your cooperative and its board are not. A final confession: Having overcome my scruples, I now use my credit card at the Co-op for many purchases—so I can’t tell you to stop using yours.